By Katie Marsal
Published: 10:00 AM EST
Several recent developments on Apple's iPhone strategy have compelled one analyst to raise his estimates and price target on shares of the company, such as word that the iPod maker is seriously considering a move to subsidize the cost of the handset through rebates or other means.
Rebates or subsidies
In an in-depth research note released to clients on Tuesday, American Technology analyst Shaw Wu cited sources who indicate that a mail-in rebate or carrier subsidy for iPhone of $50-150 is under serious consideration by the Cupertino-based electronics firm.
"We are hearing rebates of $50-150 that will be offered by AT&T to lower the price points for iPhone (currently $499 for 4 GB and $599 for 8 GB) and to entice customers to sign longer term voice and data contracts," the analyst wrote. "From AT&T's perspective, a rebate is a great marketing tool and small sacrifice to make to entice a customer to sign up for 2-year voice and data cell phone plans that cost about $75-100 per month (before taxes and fees), meaning $1800-2400 in 'guaranteed' bi-annual revenue."
Revenue share and bounties
Wu also told clients that he believes Apple will be paid a "bounty" for each AT&T customer it signs up through its retail and online stores. "In addition, Apple will likely participate in a revenue sharing agreement where part of the monthly fee charged to customers will go to Apple ," he explained. "Besides the hardware, Apple 's value added for the iPhone to AT&T is its marketing, customer service, and unique software and features, including visual voicemail and the most complete PC experience on a cell phone."
Recurring revenue streams from carriers
In addition, the AmTech analyst estimates Apple to garner "mid to high single digit incremental high margin revenue per user" from its carrier partner, which could potentially surge as high as "low double digits" depending on future iPhone features.
"We view this incremental revenue from the carriers for Apple 's value-added as positive in that it will likely be very high margin, in the 80 percent range, similar to royalty and/or intellectual property (IP) revenue where there is little incremental cost," he wrote. "We believe this recurring revenue stream is high quality and adds an additional degree of stability and predictability to Apple 's financial results."
Adding Apple to AmTech's Focus List
As a result of his findings, Wu has placed Apple on AmTech's "Focus List" while also raising his estimates and price target on consumer electronics firm.
For fiscal 2008, the analyst now estimates Apple to generate sales of $31.1 billion and per-share earnings of $4.15, up from $28.8 billion and $3.75. His model assumes sales of 3.45 million iPhone units during the fiscal year, up from a previously conservative view of 790,000 units. Still, he said, estimates could turn out conservative depending on Apple 's ability to introduce lower cost cell phones which he believes could significantly raise unit assumptions.
"We continue to view Apple as among the strongest fundamental stories with its four-pronged vertically integrated end-to-end portfolio (Mac, iPod + iTunes, Apple TV, and iPhone) and see several catalysts in the quarters ahead, including Mac OS X Leopard, new Macs, new iPods, new movie and carrier partners, and lower cost cell phones," the analyst reiterated in his note to clients.
Wu also raised his price target on shares of Apple to $145 from $118.
